Learn more about the differences between CFD trading and share trading, and which of them could be right for you.
CFDs vs share trading
CFDs
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Used to trade all sorts of instruments, including shares
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Trade using leverage to amplify profits – but losses can also exceed your deposits
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Go long and short on a market’s direction
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Positions are adjusted to offset changes from dividends
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No shareholder privileges
Share trading
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Trade shares and ETFs
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Limit risk to your initial outlay
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Trade only on rising prices
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Receive dividends (if paid)
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Trade during stock exchange opening hours
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Receive shareholder privileges, such as voting rights on major company issues
Which is best for me?
Both CFD trading and share trading offer ways to take advantage of price movements in financial markets – and both can be a great fit for your trading strategy. Take a look at the key points below to discover whether CFD trading, share trading or a mix of the two is the best fit for you.
CFD trading could be for you if...
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You want to trade a range of instruments simultaneously, including indices, FX and shares
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You want to take advantage of leverage
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You want to trade on falling markets as well as rising ones
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You want access to markets outside traditional dealing hours
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You want a corporate or professional trading account
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You want to access opportunities in over 15,000 markets
Share trading could be for you if…
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You want to ensure your losses won’t exceed your initial deposit
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You aren’t yet comfortable with the added risks or complexities of CFDs, and want to learn more about the markets
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You want to hold the physical shares, and benefit from shareholder privileges
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You want to trade CFDs using shareholdings as collateral
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You want to receive and compound dividend income
Example CFD trade vs share trade
Buying Barclays
| CFD trade | Share trade | |
Underlying price |
208 | 208 |
| Our price | 208 / 208.1
|
208 / 208.1 |
Deal |
Buy at 208.1 | Buy at 208.1 |
Deal size |
2000 shares | 2000 shares |
Initial outlay |
A$208.10 (Margin = exposure x 5% margin factor) |
A$4,162 (2000 shares at 208.1p) |
Close price |
Sell at 229 | Sell at 229 |
Profit |
A$418* (20.9pt increase x 2000 shares = $418)
*Not including commission fees |
A$418* (4580 – 4162 = 418) *Not including commission fees |
What are the technical differences?
A CFD is a financial derivative that enables you to trade on an asset’s price in the underlying market, without owning the asset itself. It is a leveraged product, meaning you only need to put up a fraction of the full value of the trade – or the ‘margin’ – to gain full exposure. Most CFDs don’t expire, though futures, digital 100s and options do.
When you trade shares, you take ownership of the shares in exchange for their full value. This means there are no underlying markets, no expiry dates and you may gain shareholder privileges.
The differences in detail
| CFD trading | Share trading | |
| What is it? | Trading a financial derivative – you deal on prices derived from the underlying market, not on the underlying market itself. | The buying and selling of physical shares in a company. |
| Are there expiries? | No expiry dates (excluding forwards, options and binaries). | No expiry dates. |
| When can I trade? | We offer 24-hour trading on forex and major stock indices. During the underlying market hours for other markets. We also offer weekend trading on selected markets. | Only when the related exchange is open. |
| Do I pay to keep positions open? | Overnight funding on all markets, except futures. Rollovers on futures. | No. |
| Does IG profit if I lose? | We profit primarily from commission, spreads and funding, and hedge the majority of net client exposure. We accept a low level of market risk, from which we can make a small profit or loss. The outcome of a client’s DMA trade never has an impact on our profit or loss. | We make our money from the commissions you pay on each trade. The outcome of a trade makes no difference to our bottom line. |
| What kind of trading is it suitable for? | Intra-day Daily Medium-term |
Long-term Investing |
| Can I receive dividends? | We make a dividend adjustment on equity and stock index CFDs. | Yes. |
| Can it be used for hedging? | Yes. | Rarely, as other products are more effective. |
| Range of markets | More than 15,000 markets, including: Forex Stock indices Shares DMA forex DMA shares ETFs and ETCs Metals Energies Spot metals Soft commodities Options Binaries Sprint options Interest rates Bonds Sectors Stock index futures Share forwards Forex forwards Daily stock index futures Daily oil futures |
Shares and ETFs only, but more than 9000 from a range of stock indices in local denominations: FTSE 100 FTSE 250 Other small cap UK stocks
S&P 500 NASDAQ 100 Other small cap US stocks European indices including: DAX HDAX MDAX Irish ISEQ Dutch AEX |
| The charges | A spread on all markets except shares. We charge a commission on share CFDs, but no spread. Funding adjustments (excluding futures). |
Commission on all trades. A currency conversion fee on international shares. |
| Dealing platforms | Desktop dealing Mobile app (iPhone, Android) Tablet app (iPad) DMA MetaTrader 4 ProRealTime |
Desktop dealing Mobile app (iPhone, Android) Tablet app (iPad) DMA MetaTrader 4 ProRealTime |
| Direct market access (DMA) | Yes, for forex and shares. | Yes. |
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